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Panasonic Says It's Open to Working With Tesla on China Factory

(Bloomberg) -- Panasonic Corp. said it’s open to teaming up with Tesla Inc. on the U.S. carmaker’s plan to build a factory in Shanghai.

The Japanese company hasn’t received a request from Tesla to cooperate in China, said Yoshio Ito, chief of Panasonic’s automotive and industrial systems unit. The Osaka-based electronics maker already has a facility in Dalian. The factory isn’t an option to supply Tesla, however, because it makes square batteries, unlike the cylindrical ones used by the carmaker, he said.

Chief Executive Officer Elon Musk plans to build a car assembly plant in China that will begin production in two years and eventually be able to make as many as 500,000 vehicles annually. While Musk said the factory will also make batteries, he didn’t specify the supplier. Panasonic would be a natural choice, because it’s already Tesla’s exclusive supplier of batteries and a partner at its Gigafactory in Nevada.

“Batteries are heavy and flammable, so there is little chance of shipping them by air,” Ito said at a briefing in Tokyo on Thursday. “It would be ideal to have a battery factory next door to the assembly line.”

Carmakers seeking to qualify for EV incentives provided by the Chinese government select domestic battery suppliers due in part to concerns that models built with foreign brands will be ineligible, even though there isn’t a written rule banning non-Chinese suppliers. Panasonic competes with China’s Contemporary Amperex Technology Co. Ltd. to supply batteries. CATL said its shipments last year reached 11.8 gigawatt hours, more than the 10 gigawatt hours Panasonic delivered.

Panasonic produces battery cells, which Tesla uses to make battery packs used in its electric vehicles. Panasonic also supplies batteries for plug-in hybrids made by Toyota Motor Corp. and Volkswagen AG.

Tesla is both looking to expand its capacity and to more efficiently reach global markets. Musk, 47, said more than two years ago that he expects Tesla to produce more than 500,000 vehicles in 2018 at its lone car-assembly plant in Fremont, California, but the company is well off that pace because of the Model 3’s slow start. It’s built a total of about 88,000 vehicles through the first half of this year.

Musk has also said he plans to reveal plans toward the end of this year to build a plant in Europe, without discussing plans for battery production.

“We won’t say ‘no,’ but it will depend on the timing and scale,” Panasonic’s Ito said. “It seems like Tesla’s priority is on China.”